More and more consumers are buying cars online. Can dealers keep up?
The rise of the internet and online shopping seemed to mark the vile end of the ubiquitous car dealership in the 1990s.
These gloomy predictions by industry watchers have turned out to be wrong; Consumers continued to flock to dealerships, which largely continued despite criticism. Then the COVID-19 pandemic struck, closing showrooms, sending sales teams home and driving consumers online to purchase vehicles.
Insiders have sounded the alarm again that dealers will not survive. In reality, the exact opposite has happened.
The pandemic has been a boon to U.S. dealerships, which posted record profits in 2020 even with reduced staff and a nationwide recession. Almost 30% of new car sales in the United States last year were made online, according to Alan Haig, automotive retail consultant and chairman of Haig Partners. Before the pandemic, less than 2% of vehicles were purchased digitally.
“This shift to digital retail is positive for dealers who embrace it,” Haig told ABC News. “For those who don’t, they will lose customers and be harmed by the trend.”
Dealers have moved quickly to drive off online competitors and rehabilitate poor customer service. There were 16,623 new vehicle dealerships franchised at the end of 2020, according to the National Automobile Dealers Association, and more than 1.1 million workers are employed in the sector.
The retail experience was “ripe for change,” but the dealerships aren’t going to go away, according to Michelle Krebs, executive analyst at Cox Automotive.
“The dealers have enormous political power. The franchise laws were written in favor of the dealers,” she told ABC News.
(These laws protect dealers from competition and require automakers to sell new cars through franchised dealers.)
According to a recent Cox Automobile Study, buyer satisfaction also hit an all-time high in 2020. The overall car buying experience took less time and was more efficient, buyers reported, and the number of dealerships visited and the time spent. ‘they spent there decreased in 2020.
E-commerce is likely to be the heart of dealer sales within a decade, with the pandemic only accelerating the inevitable, Haig said.
“Young people in particular want to buy or rent a vehicle using their cell phone,” he said. “Online becomes a portal to a showroom. When consumers come to dealerships now, they’re there to buy. “
He added, “Anything that improves the customer experience is a victory. “
Bryan DeBoer, president and CEO of Lithia Motors & Driveway, a publicly traded dealer group with 215 locations in the United States and 15,000 employees, told ABC News he has seen “an increase in traffic in online at all of our locations with active, educated consumers entering our dealerships ready to buy. “
The classic concession model has been threatened in recent years. Auto start-ups like Tesla and Polestar, the Swedish brand of performance electric cars, sell direct to consumers at company-owned stores.
Polestar “breaks the traditional car buying experience you normally find at dealerships,” Jonathan Goodman, chief operating officer of the company, told ABC News. “Instead, we are focusing on a digitally driven retail model and our retail spaces, open in the US and Canada, support our digital platform. Located in busy city centers, each space is staffed with non-commissioned Polestar specialists who will answer all of your questions or coordinate road tests on site or at home.
Volvo, which owns half of Polestar, could become the latest automaker to shake up its sales strategy. Volvo’s recently unveiled C40 Recharge electric compact SUV, for example, will only be available online.
“Globally, we are aiming for half of all our car sales to be online by 2025,” Anders Gustafsson, Volvo Car USA president and CEO, told ABC News.
Gustafsson said the company’s revised structure would not negatively impact its 285 U.S. dealerships.
“Our dealers won’t earn less than they do today,” he said.
He reiterated, however, that lower selling costs and “unhealthy competition” among dealers would benefit the company in the long run. Simplified ordering, reduced inventory and an automated purchasing process are the future of the business, he said.
A Volvo spokesperson told ABC News that “our business partners will remain an integral part of our sales and customer service process” and that there are “no plans to close any retailers within our network” .
Luxury automaker Lincoln said it worked closely with its partner dealers last year to accelerate the launch of its effortless selling experience, which includes a fully remote sales platform and virtual tour tool. to better serve customers during the pandemic.
Mary Barra, CEO of General Motors, said last May that 85% of GM dealers use Shop-Click-Drive, a shopping tool that allows users to search for certain GM vehicles at local dealerships, apply for financing, get trade-in quotes and complete part of the transaction in line. GM rolled out the tool in 2013.
Online car retailers like Carvana and Vroom have seen their sales increase dramatically over the past year. Carvana sold 244,111 cars in 2020, up 37% from 2019, and the company is investing $ 500 million in new facilities and hiring thousands of new employees, a spokesperson told ABC News.
The online push could lead to consolidation in the industry, among other changes. Sales roles will likely shift to product specialists or consultants. Dealers will have to operate with fewer workers and rely more on digital platforms for traffic.
For consumers, the digital benefits – remote contact, easy financing apps – may not be enough. There is a strong contingent of customers who wish to inspect a vehicle before signing any documents.
“Do you settle into the seat? Do you like technology? It’s always a very tactile affair,” Krebs explained.
Alex Vetter, CEO of Cars.com, also pointed out that the “dubious” reputation of dealers has improved dramatically in recent years.
“The local dealership is changing at an extraordinarily fast pace,” he told ABC News. “Many dealerships are innovating with concierge services, on-demand car washes, and even using AI to communicate with customers.”
He added, “Many manufacturers have toyed with the idea of going straight for years. They also realized that dealerships are essential for vehicle ownership.